1. Morgan Stanley
December 7th, 2004
By Adam Freda

2. Introduction
We currently own 400 shares of Morgan Stanley and purchased shares on 4/11/01 for just under 57.19
Total cost of position (adjusted for dividends) - $22,876
Market value of position - $21,308 for a loss of $1,568 as of the 12/6/04 market close of $53.27
Recommendation is to hold

3. Relevant Financial Statistics
52 Week Range: $ $62.83
Market Cap: 58.51B
P/E: 13.62
EPS (ttm): $3.91
Dividend: $1.00
Dividend Yield: 1.88%

4. Brief Background
Morgan Stanley is a global financial services firm that operates in four business segments
Institutional Securities
Individual Investor Group
Investment Management
Credit Services

5. Brief Background (cont’d)
Institutional Securities
Provides worldwide financial advisory and capital-raising services to a diverse group of corporate and other institutional clients
Individual Investor Group
Provides financial planning and investment advisory services designed to accommodate individual investment goals and risk profiles

6. Brief Background (cont’d)
Investment Management
Provides global asset management products and services for individual and institutional investors
Private equity activities
Credit Services
Offers Discover-branded cards and other consumer finance products and services
Includes the operation of Discover Business Services
A network of merchant and cash access locations primarily in the United States
Approximately 46.1 million general purpose credit card accounts as of November 30, 2003

7. Macroeconomic Review
MWD operates in the financial sector and the investment services industry
Competitors include Goldman Sachs, Merrill Lynch, Citigroup, JP Morgan, CSFB, and other investment and commercial banks
Macroeconomic forces
Investment banking business, individual investments, and credit card spending are very market dependent
Company specific forces
Reputation
Relationships

8. Stock Market Prospects – Recent Updates
Nine months ended 8/31/04
Revenues rose 13% to $29.13 billion.
Net income increased 18% to $3.31 billion
Results reflect higher fixed income and trading revenues, lower loan loss provisions, and decreased dividends on preferred securities

9. Stock Market Prospects – 1YR

10. Stock Market Prospects – 5YR

11. Stock Market Prospects – Dow Comparison

12. Stock Market Prospects – Comparison with Competitors

13. Company Strategy Global Firm
Operates in 27 countries
51,000 employees
Revenues of $38.61 billion in the last twelve months
“Product excellence and technical skills are essential to our success. They are necessary but they are not sufficient. What we truly prize is the quality of the relationships we build with our clients.”
Recognizes that large size creates a powerful platform, but also realizes that personal relationships still drive revenue growth

14. Company Strategy (cont’d)
Four key priorities set out for Fiscal 2003
Profitability
Market Share
Brand
Quality of People
Success in 2003
#1 Global Equity Trading
#2 in Announced Global Mergers and Acquisitions
#3 in Global Equity Underwriting
#4 in Global Debt Underwriting

15. Company Strategy (cont’d)
Accolades in 2003
Best Global Investment Bank — Euromoney magazine
U.S. Equity House of the Year — International Financing Review
Derivatives House of the Year — Risk magazine
100 Best Companies to Work For — Sunday Times (U.K.)
Top 50 Companies for Diversity — DiversityInc magazine

16. Company Strategy (cont’d)
Fiscal 2004 – Looking forward
A strong economy next year is a critical driver for financial services firms
Individual level
Increased consumer wealth will increase credit card spending, which generates significant revenue for Morgan Stanley
Corporate level
Improving business prospects will increase the need for capital, both debt and equity
A stronger economy will reinvigorate the mergers and acquisition and IPO markets, which are very profitable activities for Morgan Stanley
The company seems dedicated to its client-focused strategy which should position it well in the upcoming year

17. EPS Sensitivity
Sales have grown an average of only 2.39% over the last 5 years but EPS has grown at an average rate of 4.55% over the last 5 years
The five year revenue growth rate includes the boom of as well as the less profitable period

18. Combined Sensitivity Low P/E = 10 Current P/E in Market = 13
Sector P/E = 16
Wide range of prices when revenue growth and P/Es are sensitized

19. Dividend and Growth Rates
Comparable dividend yields but lower growth rates due to difficult last three years

20. Ratio Analysis and Valuation
See Excel

21. Considerations Add to position Sell Downsides
Between JP Morgan and Morgan Stanley, we have a fairly sizable stake in the financial sector already
Banks are very dependent on the overall health of the economy
The last three years were not very profitable due to the decreased number of IPOs and mergers and acquisitions
Sell
Company appears to be well positioned going forward
Both EPS and ratio analysis showed that there is growth left in this stock as long as revenue growth materializes

22. Recommendation Hold 400 shares of Morgan Stanley
Morgan Stanley operates in a fairly cyclical industry and it appears that the next few years might bring about an upturn
Must continue to monitor Morgan Stanley to see if customer-focused strategy continues to generate revenue
Must ensure that revenue growth and EPS growth are maintainable and realistic

23. Any Questions ?